Returns On Capital At Miwon Chemicals (KRX:134380) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Miwon Chemicals' (KRX:134380) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Miwon Chemicals:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = ₩16b ÷ (₩125b - ₩5.4b) (Based on the trailing twelve months to December 2020).

So, Miwon Chemicals has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 8.2% it's much better.

View our latest analysis for Miwon Chemicals

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Miwon Chemicals' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Miwon Chemicals' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 35% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Miwon Chemicals has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Miwon Chemicals' ROCE

In the end, Miwon Chemicals has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 99% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Miwon Chemicals you'll probably want to know about.

While Miwon Chemicals may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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